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A Cross-Country Empirical Analysis of International Reserves

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  • Yin-Wong Cheung
  • Hiro Ito

Abstract

Using data from more than 100 economies for the period of 1975 to 2005, we conduct an extensive empirical analysis of the determinants of international reserve holdings. Four groups of determinants, namely, traditional macro variables, financial variables, institutional variables, and dummy variables that control for individual economies’ characteristics are considered. We find that the relationship between international reserves and their determinants is significantly different between developed and developing economies and is not stable over time. The estimation results indicate that, especially during the recent period, a developed economy tends to hold a lower level of international reserves than a developing one. Furthermore, there is only limited evidence that East Asian economies including China and Japan are accumulating an excessive amount of international reserves.

Suggested Citation

  • Yin-Wong Cheung & Hiro Ito, 2009. "A Cross-Country Empirical Analysis of International Reserves," CESifo Working Paper Series 2654, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2654
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    Cited by:

    1. Kathryn M. E. Dominguez, 2010. "International Reserves and Underdeveloped Capital Markets," NBER Chapters,in: NBER International Seminar on Macroeconomics 2009, pages 193-221 National Bureau of Economic Research, Inc.
    2. Joseph Joyce & Raul Razo-Garcia, 2011. "Reserves, quotas and the demand for international liquidity," The Review of International Organizations, Springer, vol. 6(3), pages 393-413, September.
    3. Aizenman, Joshua & Inoue, Kenta, 2013. "Central banks and gold puzzles," Journal of the Japanese and International Economies, Elsevier, vol. 28(C), pages 69-90.
    4. Nebiye, Sinem & Yamak, Nebiye, 2014. "Demand for International Reserves in Turkey," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(52), pages 63-76, June.
    5. repec:kap:empiri:v:45:y:2018:i:1:d:10.1007_s10663-016-9353-3 is not listed on IDEAS
    6. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," Quantitative Macroeconomics Working Papers 20906, Hamburg University, Department of Economics.
    7. Giulio Cifarelli & Giovanna Paladino, 2009. "The Buffer Stock Model Redux? An Analysis of the Dynamics of Foreign Reserve Accumulation," Open Economies Review, Springer, vol. 20(4), pages 525-543, September.
    8. Joshua Aizenman & Reuven Glick, 2009. "Sovereign Wealth Funds: Stylized Facts about their Determinants and Governance," International Finance, Wiley Blackwell, vol. 12(3), pages 351-386, December.
    9. Florian Brugger, 2016. "Asias Reserve Accumulation: Part of a New Paradigm," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(8), pages 457-476, August.
    10. repec:pal:imfecr:v:65:y:2017:i:2:d:10.1057_s41308-016-0003-3 is not listed on IDEAS
    11. Sona Benecka & Lubos Komarek, 2014. "International Reserves: Facing Model Uncertainty," Working Papers 2014/03, Czech National Bank, Research Department.
    12. Cheung, Yin-Wong & Sengupta, Rajeswari, 2011. "Accumulation of reserves and keeping up with the Joneses: The case of LATAM economies," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 19-31, January.
    13. Atish R. Ghosh & Jonathan D. Ostry & Charalambos G. Tsangarides, 2017. "Shifting Motives: Explaining the Buildup in Official Reserves in Emerging Markets Since the 1980s," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(2), pages 308-364, June.
    14. Aizenman, Joshua & Sun, Yi, 2012. "The financial crisis and sizable international reserves depletion: From ‘fear of floating’ to the ‘fear of losing international reserves’?," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 250-269.
    15. Ghosh, Atish R. & Ostry, Jonathan D. & Tsangarides, Charalambos G., 2014. "Accounting for emerging market countries' international reserves: Are Pacific Rim countries different?," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 52-82.
    16. Florian Brugger, 2015. "Asia’s Reserve Accumulation: Part of a New Paradigm," Working Paper Series, Social and Economic Sciences 2015-03, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    17. Jung, Kuk Mo & Pyun, Ju Hyun, 2016. "International reserves for emerging economies: A liquidity approach," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 230-257.
    18. Yin-wong Cheung & Hiro Ito, 2008. "Hoarding of International Reserves: A Comparison of the Asian and Latin American Experiences," Working Papers 072008, Hong Kong Institute for Monetary Research.
    19. Hyeon-seung Huh & Philip Inyeob Ji & Cyn-Young Park, 2016. "The ‘trilemma’ hypothesis and policy implications for Fiji," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 30(1), pages 99-119, May.

    More about this item

    Keywords

    developed vs developing economies; excess hoarding; macro determinants; financial factors; institutional variables;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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